Dr Reddy's Laboratories reported a 5.6% decline in revenue for Q1FY27, driven by operational disruptions in its semaglutide API business and lower lenalidomide sales. The pharmaceutical major logged consolidated revenue of ₹8,071 crore ($853 million) and net profit of ₹443 crore ($47 million).

Financial Performance

The company’s reported EBITDA margin stood at 12.5%, down from higher levels in prior periods, primarily due to a provision of ₹240 crore related to rejected semaglutide API batches and associated costs. Excluding this provision, management indicated the underlying EBITDA margin would have been approximately 18%. Gross profit margin fell 1,039 bps year-on-year to 46.5%, reflecting the mix shift and higher solvent costs linked to Middle East conflicts.

Operating working capital decreased by ₹81 crore to ₹14,353 crore as of June 30, 2026. The company maintained a net cash surplus of ₹3,057 crore ($323 million). Capital expenditure for the quarter was ₹307 crore ($32 million), with full-year guidance set at approximately ₹1,800 crore.

Business Highlights

Despite the headline revenue decline, the underlying base business delivered double-digit growth across key geographies.

• North America: Revenue fell 41% YoY to $236 million due to lenalidomide declines, but the base business grew double-digit sequentially. The company launched complex generics including bosutinib and nintedanib.
• Emerging Markets: Revenue rose 31% YoY to ₹1,833 crore, driven by new product launches and favorable currency movements.
• India: Domestic revenues surged 70% YoY to ₹1,788 crore, outperforming the Indian pharmaceutical market growth rate of 13.5%. Organic growth in India, excluding recent acquisitions, was 15.5%.
• Europe: Revenue remained broadly flat at $131 million, impacted by price erosion and operating model changes post-NRT integration.

What the Numbers Show

A significant divergence exists between reported profitability and operational performance. While net profit margins appeared compressed at 5.25% (before adjusting for the semaglutide provision), the effective tax rate dropped to 21.3% from 26% in the prior year. This reduction was driven by the reversal of previously recognized tax provisions following favorable resolutions of earlier assessments. Consequently, the headline profit figure masks the severity of the operational hit from the ₹240 crore inventory provision, which disproportionately affected gross and EBITDA margins relative to the tax benefit received.

Strategic Outlook

Management plans to resume semaglutide commercial supplies by November 2026, targeting the delivery of 6–7 million pens between November and March. The company secured approval for semaglutide in Canada for type 2 diabetes treatment. On the regulatory front, the US FDA completed a pre-license inspection at the Bachupally biologics facility, issuing a Form 483 with seven observations, which the company has addressed. Abatacept approval remains targeted for December 2026.

Pomerantz LLP has launched an investigation into Dr. Reddy's Laboratories Limited over potential securities fraud, following a sharp stock decline after the company reported Q1FY27 earnings per share of just $0.06.

Investigation background

The investigation concerns whether Dr. Reddy's and certain of its officers and/or directors engaged in securities fraud or other unlawful business practices. The probe was triggered by the company's Q1FY27 earnings announcement on July 22, 2026, which revealed significant financial damage linked to its semaglutide operations.

Semaglutide provision dents Q1FY27 results

Dr. Reddy's reported earnings per share of $0.06 for Q1FY27, weighed down in part by a ₹2.4 billion provision related to out-of-specification semaglutide batches. The company's CEO Erez Israeli attributed the quarter's weak performance to multiple semaglutide-related headwinds.

The following table summarises the key financial and market impact disclosed on July 22, 2026:

CEO Erez Israeli stated: "The quarter's EBITDA margin was adversely impacted by semaglutide-related challenges, including lower sales, provision for rejected batches, loss of production-linked incentives and other associated costs."

Market reaction

On July 22, 2026, Dr. Reddy's stock fell $1.18 per share, or 9.4%, closing at $11.38 per share. The semaglutide-related challenges cited by management included lower sales, provisions for rejected batches, loss of production-linked incentives, and other associated costs.

About Pomerantz LLP

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